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Banks turn focus to home loans

Strong demand for homes and home loans has prompted Indian lenders to turn their attention to home loan business.

Banks are also taking refuse in home loans as sluggish growth of the economy during the past couple of years has led to a drastic decline in corporate lending.

While corporate loans slipped, demand for home loans remained persistently strong due to several factors, including urbanization, soaring incomes, trend of nuclear families.

Private-sector lenders like ICICI Bank and HDFC Bank as well as public-sector lenders like Bank of India (BOI) are offering special offers and discounts, showing that they want to expand their home loan businesses even as they will get narrower margins.

When contacted, BOI's Chief Financial Officer Anil Verma said, "This is a very safe business. All our branches are working hard to grow home loans. We want to grow faster than the industry."

State Bank of India (SBI), which was charging mortgage interest rates of up to 200 bps above its base rate in 2011, is now offering home loans at merely 10-30 bps above the base rate.

But analysts have cautioned that lower mortgage interest rates will squeeze banks' net interest margins (NIMs). Analysts expect a decline of 10-20 bps in banks' margins in the year ending March 2014.